What is a flexible spending account and are my contributions to it taxed?
Many employers now offer cafeteria plans. When the accounts in the plan are funded by the employee on a pretax basis, the accounts are called “flexible spending accounts”. Opening one can slash your annual income tax bill and also help to reduce your medical expenses. According to “Get a Financial Life” by Beth Kobliner (Simon & Schuster), a flexible spending account is “an account in which you can put a fixed amount of your own money — typically anywhere from a few dollars to an unlimited amount (depending on the employer’s plan) — to pay for specific medical expenses that aren’t covered by health insurance. What makes an FSA different from a savings account is that you can put the money into the FSA on a pre-tax basis, and that money will never be taxed. FSA money is commonly used to pay for eyeglasses, contact lenses, allergy shots, dental care, prescription drugs, chiropractic sessions and any other unreimbursed medical expense. You can also use the money to pay the deductibles o
